Investors Give Ai-Media Technologies Limited (ASX:AIM) Shares A 27% Hiding

Ai-Media Technologies Limited (ASX:AIM) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 132% in the last twelve months.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Ai-Media Technologies' P/S ratio of 2x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in Australia is also close to 1.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Ai-Media Technologies

What Does Ai-Media Technologies' Recent Performance Look Like?

Ai-Media Technologies' revenue growth of late has been pretty similar to most other companies. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Ai-Media Technologies will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Ai-Media Technologies' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.4% last year. The latest three year period has also seen an excellent 35% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 9.6% per year during the coming three years according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 5.0% per year, which is noticeably less attractive.

In light of this, it's curious that Ai-Media Technologies' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Ai-Media Technologies' P/S?

With its share price dropping off a cliff, the P/S for Ai-Media Technologies looks to be in line with the rest of the Commercial Services industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Ai-Media Technologies currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Ai-Media Technologies has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Ai-Media Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.